What are Large-Cap Stocks: Features, and Drawbacks

4 mins read
Hey stock enthusiast! Today we’re going to discuss everything that you need to learn about large-cap stocks before you invest.

summLarge-cap stocks are trendy investment choices. These are shares from companies with a market capitalisation of more than Rs 20,000 crore. Large companies are financially stable and can handle economic crises better. But before investors buy these shares, they must grasp large-cap meaning, features, and drawbacks. 

This article covers 

  • • What are large-cap stocks?
  • • Features of large-cap stocks
  • • Reasons to invest
  • • Who should invest
  • • Advantages and drawbacks

What are large-cap stocks?

Companies are divided by their market capitalisation size as large-cap, mid-cap, and small-cap. Large-caps are companies with a market capitalisation of Rs 20,000 crore and more. These are stocks of well-established companies that have a dominant market share. 

Market capitalisation estimates a company’s total worth by multiplying the share price with the total number of outstanding market shares. 

SEBI has identified 100 large-cap businesses based on their market capitalisation, which are listed on the stock exchanges from 1 to 100. Many large-cap stocks pay regular dividends and are suitable for investors looking for passive income. 

Features of large-cap stocks:

Standard features of large-cap stocks are as follows.

Consistency:

These companies are well-established and financially stable with an extensive supply chain network. They remain consistent during economic cycles.

Better analytics:

Large-cap firms have robust balance sheets and publish their financial details periodically. Investors can assess these reports to analyse investment decisions.  

Transparency:

Large-cap companies are in the business for a longer time. Investors have more data available on their actions and financial activities. 

Preferred by asset managers:

Mutual funds prefer to invest in large-cap stocks to balance risk exposure and improve returns. These stocks have higher liquidity and trade regularly on the bourses.  

Income generation:

Many investors prefer large-cap stocks because their values increase with time. These companies pay regular dividends, creating passive income for investors.  

Expensive:

Compared to mid-cap or small-cap stocks, large-cap stocks are costly because they are more discoverable and enjoy higher demands. 

How to evaluate large-cap stocks:

The large-cap company category consists of various businesses, some of which have made it to large-cap from small-cap, while others have established themselves as large-cap from the beginning. But a common factor is that all these companies have remained in the industry for a long time and maintained trackable records. All these companies have

  • • Visible competitive edge
  • • Strong brand recognition
  • • Proven leadership
  • • Performance record 

Reasons to invest in large-cap:

  • • If you have an investment horizon of five years or more and prefer low volatility, then large-cap stocks are a good fit. 
  • • If volatile growth stocks dominate your investment portfolio, adding a few stable large-cap stocks is smart.
  • • Another way to invest in large-cap stocks is through ETFs and mutual funds.  

Although these stocks are widely traded and known, you might still have to research them before investing.

Who should invest in large-cap:

You may consider investing in large-cap stocks if you are a first-time investor. These stocks are discoverable, stable, and comparatively low-risk than mid-cap and small-cap shares.

If you are a low-risk investor, then large-cap stocks are your best bet to grow your wealth without exponentially increasing risk exposure.

If you want to earn a steady income from your investment, buy large-cap stocks that pay regular dividends.  

Large-cap stocks help investors add stability, diversification, and liquidity to their portfolios. 

Advantages and drawbacks of large-cap stocks:

Advantage  Drawbacks
You can diversify your portfolio across industries.  Although these companies are stable, they take more time to rebound during economic uptrends unlike mid-cap and small-cap businesses.
These companies enjoy dominant positions in the market and are usually low in debt.  These stocks are more suitable for short-term investments. 
They have high liquidity; trade daily on the bourses. Mid and small-cap stocks generate higher returns against higher risk than large-cap stocks.

Conclusion:

We hope we have answered your question: ‘ what is large-cap?’. During investing, research each stock before adding it to your portfolio and invest according to your goals. For more investment topics, keep following Angel One’s website.  

Invest in large-cap stocks, open an Angel One Demat account and get the best Demat account charges.